Cotton price change and welfare in Togo

Abstract

This paper uses the evaluation of net benefit ratios applied to survey data on households to appreciate the effects of international price of cotton on the welfare of producers in Togo. It needs first to trace the difference between international prices and those paid to domestic producers. Furthermore, given that households are producers of these goods, we use a revenue function that depends on the remuneration of labor, other earnings and profit that in turn depends on the price paid to producers and land ownership. For estimates, the effect of welfare, which is captured by the compensating variation, is the result of the share of the average cotton income in average total income multiplied by the change in the price of cotton. Our results with QUIBB 2006 and 2011 survey data reveal that the impact of a price change on the compensating variation gives a welfare change relatively higher for poor households. However, this effect remains low, considering whether a change in producer prices or in international price. A simulation of a potential effect of the change in the producer price of 50% of the differential of the two prices, and the positive impact on social welfare that results appears stronger. This positive change in welfare is reversely associated to the wealth of households.